The Fed recognised 'downside risks' and pledged to continue the extreme QE policies it has maintained to stimulate the flagging economy. The Fed promised to increase and decrease as circumstances demanded but this failed to inspire equity markets. The DOW tumbled triple digits entering the month of May. The important ADP private sector jobs report fell well short of expectations, adding 110,000 Jobs, well below the 150,000.

This is a guide to the Non-Farm Payrolls on Friday which has high hopes of growth but economic fundamentals have been weak despite the surge in risk appetite. Construction Spending contracted 1.7%, pouring cold water on the Housing recovery which has been the ray of hope. The EUR has been a beneficiary of the bad news from America, rising to 1.3180 and the GBP continuing to book gains trading 1.5565.

Chinese Manufacturing data disappointed, falling to 50.6 from 50.9, which does not mean a great deal but does reveal directional worries. The bad news from China has killed demand for commodities which fell across the board. This did not help the higher yielding stellar currencies that have been the darlings of the markets.

The AUD dipped back to 1.0270 and the KIWI slipped below 0.8500. Warnings bells are sounding across the risk markets despite the $3.3 Trillion Balance Sheet the Fed has accumulated, with promises of further largese.

Reckless Monetary policy to counter Fiscal ineptitude has forced Reserve Banks to extreme expansion causing bubbles and begging an explosion of deformations in Bonds and Equities. Inflationary pressures have been forgotten through measurement techniques and lapsed memories but it is there and will rise reminding economists of their worst nightmare scenario.

Markets were again flat on equity markets with mixed economic data and some weaker than expected earnings results in the US.

In Europe, EU CPI contracted to 1.2% reflecting negative growth in the zone and the continuance of extended recession/depression. Employment has reached 12.1% across the single market and it is hard to move ahead with so many idle resources directly impacting the consumer. German Consumer Confidence rose to 6.2 but retail sales contracted 2.8%, so domestic demand is no saviour.

The EUR remained firm, trading 1.3150 and the GBP 1.5525, ignoring the expected cut in interest rates by the ECB.

In the US, the Case Shiller Home Price Index rose to a 7 year high of 9.3% boosting hopes of a recovery in this leading sector. Consumer Confidence was also higher, to 68.1, but this good news was dented by the Chicago Manufacturing report which plunged below 50 to 49.

Economic fundamentals continue to disappoint and technicals are now pointing to peaks in the equity markets which coincides with the month of the Bear!

Commodities remain bid and the AUD holds 1.0350 and the KIWI 0.8550. These yield driven, risk currencies will be heavily impacted by any correction in equities and commodities as safety flows to the 'Big Dollar'!

Equity markets continued the rally in Equities, despite the slew of weak economic data, emanating from a positive European rally. Expectations are that the ECB will cut rates to 0.5% and in addition launch in to a round of QE and an aggressive debt monitisation program. The 'currency wars' have resulted in a recovery in US and Japanese equities and the ECB are considering throwing caution to the wind.

Debt monitisation was a pre-GFC no-no for all Central Banks, as the purchase of your own Government debt to fund ever increasing deficits and debt was seen as economically corrupt. Central Bankers crossed the line and have now abandoned many of the principles of Monetary Policy previously sacrosanct.

The news from Europe should have resulted in further erosion of the value of the single currency but had the opposite effect. The EUR rallied to 1.3100, reacting to the rise in risk appetite and boosted by an increase in commodity demand. The GBP held steady at 1.5480 and all looks positive across Europe with a Government in Italy and the new pro-growth anti-austerity sentiment prevailing.

Forget the critical deficits driving debt to unserviceable levels as interest rates flooded with liquidity should allow this gross delusion to continue. US Equity markets rallied on the back of EU prospects with the S&P hitting new highs as the rally continues. Pending Home Sales rose 1.5% and this was a further sign from the market Gods to pile in!

The Dallas Fed Activity Index plunged 15.6% but this was largely ignored as Bernanke drives investment decisions in search of yield building bubbles. Economic fundamentals have all pointed in the opposite direction and May could be the reality check the market finally needs.

The AUD bounced on further rises in demand for commodities and traded 1.0330 with the KIWI continuing to outperform at 0.8540. Scary times with frenzied yield investment and unprecedented technical levels.

US GDP data frightened many equity investors as markets fell flat. First quarter growth in the US was 0.4% and an annualised rate of 2.5% below the expected 3%. The news was not surprising as economic fundamentals have been weak all year despite the much vaunted 'housing recovery!'

Data will be out this coming week placing some doubt on market forecasts in the leading indicator that is housing.

This coming week will look closely at this and pay close attention to the Fed's rate decision and the ECB, who are expected to cut rates as Europe continues to battle recession. The EUR held above 1.3000 and the GBP looks set to test 1.5500! Risk appetite has fallen recently despite the continuing flood of liquidity being pumped into the US, Japan and the EC.

The major employment reports will also be released in the US which will probably confirm the stagnation in the worlds largest economy. Commodities remain bid supporting the AUD at 1.0275 but this will be vulnerable to any major equity correction in May!.

The KIWI continues to gain support and has become a market darling trading up around the 0.8500 but this too will suffer uncertainty in Equities and risk markets!

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